Regulatory amendments related to small-business subcontracting will take effect on November 1, 2016.
On July 14, the Federal Acquisition Regulatory Council issued a final rule in the Federal Register to implement regulatory changes that the Small Business Administration (SBA) made. The final rule makes many important changes to the Federal Acquisition Regulation (FAR) Part 19 and FAR clause 52.219-9 to implement the statutory requirements of Sections 1321 and 1322 of the Small Business Jobs Act of 2010 (Pub. L. 111-240). These changes, which take effect on November 1, are summarized below.
The new rule amends FAR clause 52.219-9, Small Business Subcontracting Plan, to require prime contractors to make good-faith efforts to utilize their proposed small-business subcontractors during a contract’s performance to the same degree that such small businesses were relied on in preparing or submitting the contract bid or proposal. If the prime contractor is unable to make this effort, it must explain in writing to the contracting officer, within 30 days of contract completion, the reasons why it is unable to do so.
Under amended FAR subpart 19.704(a)(2), contracting officers will have discretionary authority to require a contractor to establish subcontracting goals both in terms of total subcontract dollars and in terms of total contract dollars. The Federal Acquisition Regulatory Council clarified that use of total contract dollars is in no way an attempt to influence a contractor’s make or buy decision and clarified that a contracting officer will make such decisions on a case-by-case basis. In addition, under the amended FAR subpart 19.705-1, the contracting officer may establish small-business subcontracting goals at the order level for indefinite-delivery, indefinite-quantity contracts.
The rule provides a contracting officer with the authority to require a subcontracting plan from a prime contractor during contract performance in two situations:
Under the revised FAR clause 52.219-9, prime contractors will be required to assign a North American Industry Classification System (NAICS) code and corresponding size standard to each subcontract with a small-business concern.
Under the amended FAR clause 52.219-9, prime contractors may not prohibit a subcontractor from discussing with the contracting officer any material matter pertaining to payment or use of a particular subcontractor.
Also under 52.219-9, prime contractors are directed to resubmit corrected subcontracting reports within 30 days of receiving notification that a report has been rejected.
Under the revised FAR clause 52.219-9, prime contractors must notify unsuccessful small-business offerors for subcontracts in writing and provide the successful offeror’s name, location, and socioeconomic status.
Historically, the agency that awarded a contract also received the small-business subcontracting credit. The new rule changes this model by allowing funding agencies to receive the small-business credit.
The proposed rule imposes some significant new compliance obligations and will require contractors to be vigilant in meeting those obligations. Large and small businesses alike should familiarize themselves with the final rule’s changes to prepare for the November effective date.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Sheila A. Armstrong
Katelyn M. Hilferty